Demystifying Chapter 15 of the Bankruptcy Code and Recent

Cross-Border Insolvency Developments

Speakers: Wanda Borges, Esq.BORGES & ASSOCIATES, LLC

Bruce Nathan, Esq.LOWENSTEIN SANDLER LLP

Date: June 13, 2018

Time: 10:30 - Noon

Session Number: 27077

50339259

22

� A Commission comprised of 60 United Nations’

● elected by the United Nations General Assembly for a term of six years.

● Membership is structured to ensure representation of the world's various

geographic regions and its principal economic and legal systems.

� In existence since 1966

� Establishment of Model Laws

● UNCITRAL Arbitration Rules (1976)

● UNCITRAL Conciliation Rules (1980)

● UNCITRAL Model Law on International Commercial Arbitration (1985)

● UNCITRAL Model Law on Cross-Border Insolvency (1997)

- Guide to Enactment and Interpretation (2013)

● UNCITRAL Model Law on International Commercial Conciliation (2002)

United Nations Commission On International Trade Law [UNCITRAL]

33

Four Elements Of The Model Law

� (a) Access: to the courts of an enacting State to seek assistance and authorize representatives of local proceedings being conducted in the enacting State to seek assistance elsewhere

� (b) Recognition: recognition of qualifying foreign proceedings in order to avoid time-consuming legalization or other processes that often apply and to provide certainty with respect to the decision to recognize.

� (c) Relief: considered necessary for the orderly and fair conduct of cross-border insolvencies should be available to assist foreign proceedings.

� (d) Cooperation and coordination: among the courts of States where the debtor's assets are located and coordination of concurrent proceedings concerning that debtor.

Page 1

44

Chapter 15’s Main Objectives

�U.S. Court of Appeals - Third Circuit (important U.S.

Appellate Court) - In re ABC Learning Centres Ltd.

(2013) Noted:

● With the enactment of Chapter 15, Congress

encouraged communication and cooperation with

foreign courts, and authorized U.S. courts to

communicate directly with foreign courts.

● Chapter 15 reflects a universalism approach to

transnational insolvency that is meant to direct

creditors and assets to the foreign main insolvency

proceeding and ensure the orderly and fair

distribution of assets.

55

�A Recognized Foreign Representative

may file

● An involuntary case in the U.S.

● A voluntary case in the U.S. IF the

foreign proceeding is a foreign main

proceeding

Various Types Of Proceedings Under Chapter 15 Of The U.S. Bankruptcy Code

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66

New Rule Establishing Procedures

U.S. Bankruptcy Rule 5012 has established procedures for obtaining approval of an agreement regarding communications and coordination of proceedings with cases involving the debtor that are pending in other countries.

� Motion required with copy of proposed agreement or protocol attached

� 30 days notice of a hearing must be given to all parties

� Parties include:

● U.S. Trustee

● Debtor

● all authorized to administer foreign proceedings of the debtor

● all against whom provisional relief is being sought

● all parties to litigation pending in the U.S. in which debtor is a party

77

What Happens During A Chapter 15 Proceeding

�Foreign Main Proceeding

● Means a foreign proceeding pending in the country where the debtor has the center of its main interests

�Foreign Nonmain Proceeding

● Means a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment.

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What Happens During A Chapter 15 Proceeding

� EXAMPLES

● Suntech Power Holdings Co., Ltd.

- Only nexus to the U.S. was a bank account opened in New

York just prior to filing for chapter 15 protection

- After trial, Court found the bank account was enough to

allow qualification for chapter 15 protection.

● LDK Solar Co.

- Reorganization Proceedings filed in China and in the

Cayman Islands

- Chapter 15 filed in Delaware, U.S.

- Arguments arose as to the COMI (Center of Main Interests)

of LDK Solar

- Delaware granted the chapter 15 protection as a “multi-

jurisdictional) proceeding

99

�Section 109(a) of the Bankruptcy Code Requires All “Debtors” that Seek Protection to Have a Place of Business or Property in the U.S.

�Split has Developed in the Case Law Over Whether a Foreign Debtor Must Have a Place of Business or Property in the U.S. to Qualify for Chapter 15 Relief

Must a Foreign Debtor Have Assets Located in the United States to Qualify for Chapter 15 Protection? Maybe…

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�U.S. Court of Appeals - Second Circuit (Another Prominent Appellate Court) - In re Barnet (2013); U.S. Bankruptcy Court – Southern District of New York – In re Octaviar Admin. Pty Ltd (2014) and In re Berau Capital Resources Pte Ltd (2015):

● Requires all foreign debtors to maintain place of business or property in the U.S.

- Note that: a retainer sent to a U.S. law firm, or even a contract between a foreign debtor and a third party governed by New York law, could satisfy U.S. property requirement

Must a Foreign Debtor Have Assets Located in the United States to Qualify for Chapter 15 Protection? Maybe… (Cont.)

1111

�U.S. Bankruptcy Court, Delaware –

In re Bemarmara Consulting A.S. (2013):

● No need for a U.S. office or any U.S. assets to qualify for Chapter 15 recognition

● Rather, just need Foreign Representative

seeking recognition in aid of the foreign

proceeding and satisfying the other Chapter

15 eligibility requirements

Must a Foreign Debtor Have Assets Located in the United States to Qualify for Chapter 15 Protection? Maybe Not… (Cont.)

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�Chapter 15 Case Commenced by Filing

Petition in U.S. Bankruptcy Court

�Given Delay Between Filing and Final

“Recognition” Hearing, Foreign

Representative Typically Requests (and

Courts Typically Grant) Interim or

Provisional Relief

Provisional/Interim Relief – Help for Foreign Debtor During Gap Period

1313

First Steps During A Chapter 15 Proceeding

� Provisional Relief involves

● Staying execution against debtor’s assets

● Entrusting administration of debtor’s assets to the Foreign

Representative or another person authorized by the court to

protect and preserve the assets

� Provisional Relief Includes Applying Automatic Stay

provisions of U.S. Bankruptcy Code §362 with respect to

the debtor and property of the debtor that is within the

territorial jurisdiction of the U.S.

● a stay/injunction of:

- creditor collection actions/litigations in the U.S. against foreign

debtor; or

- any party turning over assets of the foreign debtor to protect foreign

debtor’s U.S. asset

Page 6

1414

First Steps During A Chapter 15 Proceeding

�Provisional Relief also Includes

● protection from termination of important

leases/executory contracts

● enforcing financing approved in foreign proceeding

- In In re Catalyst Paper Corp. (2012), Court enforced CCAA Canadian Proceeding, including financing order entered in Canada)

�Any other appropriate relief

�Foreign Representative may operate debtor’s business

1515

Provisional/Interim Relief (Cont.)

�Provisional/Interim Relief Conditioned on Debtor Satisfying the Standards for Preliminary Injunction:

● Reasonable probability of success on the merits

● Irreparable injury by denial of the relief

● Whether granting the interim relief will result in even

greater harm to the non-moving party

● Whether the interim relief will be in the public interest

�Provisional Relief is Routinely Granted

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Provisional/Interim Relief (Cont.)

�All Provisional and Final Relief Must “Sufficiently Protect” Creditor Interests. See 11 U.S.C. 1522(a)

�Also, Bankruptcy Court Cannot Grant Relief “Manifestly Contrary” to U.S. Public Policy

�WARNING: Creditors Must be Cognizant of Relief Sought by Debtor that Could (Intentionally or Intentionally) Impinge on Their Rights – Particularly Given the Broad Ability of a Court to Grant “Any Appropriate Relief” Sought by the Debtor

1717

Provisional/Interim Relief (Cont.) - Hanjin Shipping

�In re Hanjin Shipping Co., Ltd. (2016) -

Large International Shipping Company

Commenced Rehabilitation Proceeding in

Korea

�Commenced Chapter 15 Case in the U.S.

Bankruptcy Court, District of New Jersey to

Recognize Korean Proceeding

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Provisional/Interim Relief (Cont.) - Hanjin Shipping

�Chaotic first day Chapter 15 Hearing

● Concern from cargo owners, port operators, and carriers that relief sought by debtor did not “sufficiently protect” interests of parties seeking to obtain release of cargo containers

● Hanjin proposed provisional relief that could be read to prevent the transfer of any Hanjin assets, including Hanjin cargo containers

- This was a potential disaster for cargo owners with

goods inside containers that Hanjin was in process

of delivering

1919

Provisional/Interim Relief (Cont.) - Hanjin Shipping (Cont.)

�Following Significant Objections From Creditors, the U.S. Bankruptcy Court Directed Parties to Negotiate Complex Protocol Approved as Part of Interim/Provisional Recognition to Allow for Goods to Keep Flowing

�The Court Also Issued a Decision Which Allowed Ships to Enter U.S. Under Stay Protection, Which Kept Goods Flowing

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2020

� Stay the commencement or continuation of an individual

action or proceeding concerning the debtor’s assets,

rights, obligations or liabilities if they have not already

been automatically stayed

� Stay execution against debtor’s assets if that has not

already been automatically stayed

� Suspend the right to transfer, encumber or otherwise

dispose of any assets of the debtor

� Provide for the examination of witnesses, taking of

evidence or delivery of information concerning debtor’s

assets, affairs, rights, obligations or liabilities

Relief Which May Be Granted Upon Recognition Of A Foreign Proceeding

2121

Relief Which May Be Granted Upon Recognition Of A Foreign Proceeding (Cont’d)

�Entrust the administration or realization of all of part

of the debtor’s assets within the territorial U.S. to the

Foreign Representative of other court appointed

person

�Entrust the distribution of all or part of the debtor’s

assets located in the U.S. to the Foreign

Representative or other court appointed person

● The court must be satisfied that the interests of creditors in the United States are sufficiently protected.

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2222

Relief Which May Not Be Granted Upon Recognition Of A Foreign Proceeding

�THE COURT MAY NOT ENJOIN

A POLICE OR REGULATORY

ACT OF A GOVERNMENTAL

UNIT, INCLUDING A CRIMINAL

ACTION OR PROCEEDING

232323

Protections Granted To Creditors

� The court may grant the relief detailed or may modify the

relief ONLY if the interest of the creditors and other

interested parties are sufficient protected

� The court may subject the operation of the debtor’s

business by the Foreign Representative to protective

conditions, including the giving of security or filing of a

bond

� The court may modify or terminate relief already granted

on its own motion (sua sponte) or upon request of an

interested party

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Balance/Tension Re Applicability of Foreign Law

� Goal of Chapter 15 is Comity/Deference to Law Where

the Foreign Case is Pending

vs.

� Obligation of U.S. Courts to Sufficiently Protect Creditors’

Interests

� Where Relief Seriously/Unjustifiably Injures Creditors,

U.S. Court Must Deny Such Relief

� U.S. Creditors/Parties in Interest Must be Vigilant in Reviewing all Relief Sought by the Debtor in Chapter

15 Case as Such Relief Could Negatively Impact Creditor Rights

2525

� Russian Insolvency Proceeding Qualified as “Foreign

Proceeding”

● Collective proceeding pending in foreign country (Russia) under

law relating to insolvency or adjustment of debt (Russian

Bankruptcy Law) in which debtor’s assets and liabilities are

subject to control/supervision by Russian court for reorganization

or liquidation

� Petitioner, Financial Administrator Appointed by Russian

Court, Qualified as “Foreign Representative”

● Analyzed debtor’s financial condition

● Conducted sale of debtor’s assets

● No disinterestedness requirement

Russian Insolvency Proceeding Recognized as Foreign Main Proceeding: In re Poymanov – U.S. Bankruptcy Court Southern District of New York – 7/31/017

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� Russian Insolvency Proceeding “Not Manifestly Contrary

to U.S. Public Policy”

� Public Policy Exception to Recognition is Narrowly

Construed and Invoked Only Under “Extraordinary

Circumstances” Concerning Matters of Fundamental

Importance to U.S.

● No evidence of any impropriety by Foreign Representative or any impropriety or corruption attributable to the Russian

court in the Russian insolvency proceeding

U.S. Court Recognizes Russian Insolvency Proceeding as Foreign Main Proceeding

2727

� The Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”) Provide Guidance on How Creditors

Receive Notice of a Chapter 15 Filing

� Under the Bankruptcy Rules, at Least 21 Days Notice of

the Chapter 15 Filing Must be Provided to:

● All entities against whom provisional injunctive relief is

sought

● All persons that are parties to any U.S. litigation with

the Chapter 15 debtor

● Such other parties as the court may direct

How Does A Trade Creditor Become Aware Of A Chapter 15 Filing?

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� Chapter 15 Debtors Frequently Seek to Establish Court-

Approved Notice Procedures Prior to Entry of Final

Recognition Order

� In re Hanjin Shipping Co., Ltd. (2016)

● Established procedures that required notice of the

Chapter 15 filing and a proposed recognition hearing

date by domestic or international U.S. mail to:

- All known creditors and other parties against whom relief is

sought, whether inside or outside the U.S.

- List of creditors was filed in Korean proceeding, and posted

on Hanjin website

How Does A Trade Creditor Become Aware Of A Chapter 15 Filing?

2929

Coordination Of A Chapter 15 Case And A Foreign Proceeding

� Any relief granted in the foreign proceeding must be consistent with the relief granted in a chapter 15 proceeding

� Any stays granted in a foreign proceeding shall be consistent with relief granted in the United States

� In granting, extending, or modifying relief granted to a representative of a foreign nonmain proceeding, the court must be satisfied that the relief relates to assets that, under the laws of the U.S. should be administered in the foreign nonmain proceeding

� Where there is more than 1 foreign proceeding, the court shall seek cooperation and coordination among the proceedings

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� Protect Foreign Debtor’s U.S. Assets

� Approve Claim Filing Procedures

� Bind Creditors to Terms of a Foreign Restructuring/Liquidation Plan

� Obtain Releases for Non-Debtor Third Parties

� Facilitate Sales of U.S. Assets and/or Lease/Contract Assignments

� Obtain Case Financing (DIP Financing/Cash Collateral)

� Discovery of Third Parties by Debtor

� Grant Other Necessary Orders, Protocols, or Procedures

Chapter 15’s Practical Uses In Aid Of Foreign Proceeding

3131

�Court-Appointed Foreign Representative

Commenced Chapter 15 Case to:

● stay ship/vessel arrests which began

following the filing of the rehabilitation

proceeding in the Republic of Korea; and

● allow the Debtor to bring in goods from Asia

into the U.S. and insulate goods from

creditor seizure/attack

Preventing Creditor Attack On Foreign Debtor’s Assets - Hanjin Shipping (2016)

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� During the “Gap Period,” the Bankruptcy Court Approved

Several Orders for Provisional Injunctive Relief and

Stayed Attempted Creditor Collection Efforts

� Bankruptcy Court Wrote Extensive Opinion on Maritime

Lien Issues (Subsequently Affirmed by the District Court)

Which Allowed Goods/Commerce to Continue to Flow

� Court Subsequently Recognized the Korean Proceeding

as a Foreign Main Proceeding

● automatic stay under section 362 of the Bankruptcy Code

remained in place during the pendency of the Chapter 15 case

Preventing Creditor Attack On Foreign Debtor’s Assets - Hanjin Shipping (cont.)

3333

Where Are Proofs Of Claim Filed?

� Proofs of Claim Against Chapter 15 Debtors are Different

From Those Seen in Chapter 11 and 7 Cases

� Claims Usually Must be Filed in the Foreign Proceeding

and NOT in the U.S. Chapter 15 Bankruptcy Proceeding

● Need to follow claim filing requirements in foreign

proceeding, unless a different process is ordered by

U.S. Bankruptcy Court

● Creditors may need to retain foreign counsel to advise

on foreign claim filing requirements (particularly as

claims may need to be filed in foreign language and

satisfy requirements of foreign jurisdiction)

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3434

� Claims Against Entities Filing Both CCAA and Chapter 11 Cases

(“Cross Border Debtors”):

● Could be filed in either CCAA or Chapter 11 case

● Treated as Canadian claim

● If Creditor, Cross Border Debtors, Unsecured Creditors’ Committee

(“UCC”) in U.S. Chapter 11 and Canadian Monitor cannot agree on

resolution or forum to determine objection to claim:

- Canadian court determines appropriate forum for adjudicating

objection

- If claim is referred to Canadian court for determination, the Canadian

claims order governs allowance, amendment or disallowance, and

UCC has standing to participate

- Any party can seek joint hearing of U.S. and Canadian courts to

resolve disputes

Claims Protocol: Abitibibowater (CCAA Canada, Chapter 11 U.S. Bankruptcy Delaware)

3535

� Claims Against Canadian (Abitibi) Debtors:

● Filed in CCAA proceeding in accordance with Canadian Claim Procedures

● Subject to Canadian procedures for allowance or disallowance of claims and determined in CCAA proceeding

� Claims Against U.S. (Bowater) Debtors:

● Filed in Chapter 11 case in accordance with Claims Bar Date order

● Subject to allowance or disallowance of claims in Chapter 11 cases and determined by U.S. Bankruptcy Court

Claims Protocol: Abitibibowater (CCAA Canada, Chapter 11/Chapter 15 U.S. Bankruptcy Delaware)

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�Rede Energia S.A. (2014) Commenced Chapter 15 Case in the Bankruptcy Court for the Southern District of New York

● Ancillary to Brazilian bankruptcy/reorganization proceeding

�Chapter 15 Case was Filed to Bind Unsecured Noteholders to the Terms of a Reorganization Plan Confirmed Under Brazilian law

Binding U.S. Creditors To A Restructuring Plan - Rede Energia

3737

�Ad Hoc Group of Noteholders Objected, Arguing that

Plan Improperly Substantively Consolidated Debtor

Entities and Treated Similarly Situated Unsecured

Creditors Differently

�Bankruptcy Court Overruled Objections and Granted

Recognition of the Brazilian Reorganization Plan,

Finding that Chapter 15 Does Not Require the Laws

of Brazil be Identical to U.S. Laws, Rather Focuses

On the Fairness of the Process and Also Found that

the Differing Recoveries Were Justified

Binding U.S. Creditors To A Restructuring Plan - Rede Energia (Cont.)

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� Metcalfe & Mansfield - Debtors Filed Canadian CCAA

Proceeding, Canadian Court Approved Plan that Granted

Broad Releases in Favor of a Group of Canadian and

Foreign Banks, Rating Agencies and Liquidity Providers

� Debtors’ Foreign Representatives Commenced Chapter

15 Case in Bankruptcy Court, Southern District of New

York

● Bankruptcy Court approved third party releases that likely would

not have been approved in a U.S. Chapter 11 case

● Similar outcome in case in Bankruptcy Court, Southern District of

New York, Sino-Forest

Granting Third-Party Releases -Metcalfe & Mansfield

3939

Third-Party Releases - Vitro

�U.S. Court of Appeals - Fifth Circuit in Ad

Hoc Group of Noteholders v. Vitro S.A.B.

de C.V. (In re Vitro S.A.B. de C.V.) (2012)

Reached Opposite Holding:

● Refused to recognize non-debtor third party releases in Mexican reorganization plan

● Court found such releases inconsistent with U.S. public policy

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Asset Sales - Hanjin Shipping

�Foreign Representative Sought Recognition of Korean Court Order Authorizing the Sale of the Debtor’s Equity Interest in a Port Facility in California and the Assignment of Certain Leases and Related Assets Free and Clear of Liens Pursuant to Bankruptcy Code Section 363

�Korean Sale Order Required Sale Proceeds to be Repatriated to Korea for Distribution to Creditors Based on Claims Filed There

4141

Asset Sales - Hanjin Shipping

�Creditors Owed Post-Petition “Common Benefit

Claims” Objected, Arguing Approval of Sale Should

Be Conditioned on Sales Proceeds Remaining in

U.S. for the benefit of U.S. Creditors

�Bankruptcy Court Approved the Sale Over Creditor

Objections, Finding Creditors Should Assert Claims

in the Korean Proceeding and Assets Better

Administered in Korea Where all Claims Pending

�Court Authorized Sale Proceeds to be Sent to Korea

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4242

Asset Sales (Cont.) - Fairfield Sentry

�U.S. Court of Appeals - Second Circuit, Fairfield Sentry – (2014):

● reversed decision of Bankruptcy Court giving comity

to decision approving sale in British Virgin Islands

proceeding, and instead required U.S. court to

conduct independent section 363 analysis regarding

Virgin Islands sale order

● On remand, Bankruptcy Court (2015) disapproved of

sale as not satisfying Section 363 business judgment

standards

4343

�CHAPTER 15 DEBTOR’S FOREIGN

REPRESENTATIVE DOES NOT HAVE

THE POWER TO COMMENCE U.S.

AVOIDANCE ACTIONS IN CHAPTER 15

CASE

● Preference

● Fraudulent transfer

�However…

Limits On Chapter 15 Debtor’s Foreign Representative’s Powers

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4444

�Fogerty v. Condor Guaranty, Inc. –U.S. Fifth Circuit ● Fifth Circuit held, in connection with Condor

Insurance Chapter 15 case filed in the Bankruptcy Court for the District of Mississippi, that debtor’s foreign representatives can sue on fraudulent transfer and other avoidance claims arising under foreign (Nevis) law

Limits On Chapter 15 Debtor’s Foreign Representative’s Powers (Cont.)

4545

� In re Massa Falida Do Banco Cruzeiro Do Sul S.A. -Bankruptcy Court for the Southern District of Florida

● The trustee in a Brazilian liquidation proceeding commenced an adversary proceeding in a Chapter 15 case seeking to avoid certain fraudulent transfers under New York law.

● The U.S. bankruptcy court denied a motion to dismiss filed by the defendants and held that a foreign representative in a Chapter 15 case could prosecute fraudulent transfer claims arising under New York law because the foreign representative had “independent” standing to prosecute such claims under Brazilian and New York law.

Limits On Chapter 15 Debtor’s Foreign Representative’s Powers (Cont.)

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4646

� Canadian Parties Have Frequently Filed U.S. Chapter 15 Cases in

Conjunction with Proceeding originating in Canada

� Canadian Debtors Prefer CCAA and Other Restructuring Cases

Because they are Less Costly, Move Quicker and Require Fewer

Court Hearings than U.S. Chapter 11

� Canadian Party Commences CCAA and then Files Chapter 15 in

U.S.

● Canadian Court orders are generally recognized and accorded

full force and effect in U.S.

● The court-appointed Canadian Monitor often maintains a

website which serves as great source of information

regarding the foreign proceeding

U.S. Chapter 15 In Conjunction With Plenary Proceeding In Canada

4747

Cross-Border Insolvencies

�Debtor Simultaneously Subject to Insolvency Laws of Multiple Jurisdictions

● Hanjin Shipping – debtor was forced to commence

ancillary recognition proceedings in at least ten

(10) countries

�Cross-Border Bankruptcies Generally Involve Multiple Affiliated Entities Operating in Various International Jurisdictions

● Each jurisdiction has own distinct contradictory

laws and procedures

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Cross-Border Insolvencies (Cont.)

�Foreign Affiliates Have Pending Foreign

Proceeding(s)

�U.S. Affiliate(s) May File Chapter 11 in

U.S.

�Alternatively, Foreign Debtor and U.S.

Affiliates May File Chapter 15 in U.S.

Ancillary to Foreign Proceeding

4949

� Typically, Chapter 15 Protection Is Granted to Foreign Debtor With

U.S. Assets/Operations

� Can Chapter 15 Relief Be Granted to Foreign Debtor and its U.S.

Affiliates/Subsidiaries?

� Typically, U.S. Companies Seeking to Reorganize Must File a

Chapter 11 Petition

● U.S. Creditors Obtain Chapter 11 Bankruptcy Code Protections

(i.e. 503(b)(9) claims, Bankruptcy Code Priority Scheme, etc.)

� However, in Two Cases, Foreign Debtors Have Filed for Chapter 15

and Sought to Include their U.S. Affiliates in the Chapter 15

Case; Potentially Dangerous for U.S. Creditors

Can a Foreign Debtor Obtain Chapter 15 Relief for U.S. Affiliates and Seek to Strip U.S. Creditors of Chapter 11 Bankruptcy Code Protections?

Page 24

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� Catalyst Paper Corp. and its Canadian and U.S. Subsidiaries Commenced CCAA Proceedings in Canada

� Debtors, Including U.S. Subsidiaries, Also Filed Chapter 15 Petitions in U.S. Bankruptcy Court in Delaware For Recognition of CCAA Proceeding

� Certain of the Debtors’ unsecured noteholders objected to Chapter 15 recognition as to the U.S. Debtors, arguing the U.S. Debtors did not Qualify for Chapter 15 because (i) Substantially all of the U.S. Debtors’ assets, employees, and operations were located in the U.S. and (ii) the notes were issued under U.S.-law governed indentures and are guaranteed by the U.S. Debtors

� Catalyst Argued Canada Was “Nerve Center” of Debtor Group

� Chapter 15 Recognition Granted, both as to Canadian and U.S. Debtors

Can a Foreign Debtor Obtain Chapter 15 Relief for U.S. Affiliates and Potentially Seek to Strip U.S. Creditors of Chapter 11 Protections? (Catalyst Paper Corp.)

5151

� Mood Media Debtors commenced a proceeding pursuant to the Canada Business Corporations Act (CBCA) in Canada, and obtained certain interim relief in Canada with respect to Canadian and U.S. Entities

� Mood Media Debtors Sought Chapter 15 Recognition for Canadian and U.S. Entities in U.S. Bankruptcy Court for the Southern District of New York

� Objector Argued that the U.S. Debtors did not have Sufficient Non-Transitory Economic Activity in Canada to Qualify for Chapter 15 Recognition.

� Debtor Argued Each of the U.S. Debtors had an “Establishment” in Canada because the Debtors’ Parent Company, Mood Media Corp., is a Canadian Corporation Holding a 100 Percent Ownership Interest in the Remaining Debtors and that Corporation was a Complex Enterprise; Numerous Administrative, Support, and Other Functions Were Centralized and Managed by the Canadian Parent

� U.S. Bankruptcy Court Denied Chapter 15 Recognition as to U.S. Debtors

Can a Foreign Debtor Obtain Chapter 15 Relief for U.S. Affiliates and Potentially Seek to Strip U.S. Creditors of Chapter 11 Protections? (Mood Media Corp.)

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� Ocean Rig UDW and Several Affiliated Foreign Debtors Commenced

Provisional Liquidation Proceedings in the Grand Court of the Cayman

Islands, and Sought Chapter 15 Recognition of Such Proceedings in

U.S. Bankruptcy Court for the Southern District of New York

� Bankruptcy Court Granted Provisional Chapter 15 Relief

� Certain Unsecured Noteholders Sought Relief from Provisional Order

to Commence An Involuntary Bankruptcy Petition Against the Ocean

Rig Debtors

� Judge Denied Request to File Involuntary Bankruptcy Petition

and Determined Chapter 15 Provisional Order Prevented U.S.

Creditors from Filing an Involuntary Petition

Can U.S. Creditors File an Involuntary Chapter 7 or 11 Petition Against Foreign Debtors After a Chapter 15 Case is Filed Prior to Recognition Being Granted? (Ocean Rig UDW)

5353

Cross Border Protocols

� Used to Coordinate and Harmonize (as Best Possible)

Cross-Border Insolvency and Restructuring Cases

� Have Become More Common In Cross Border Cases

� Several U.S. Bankruptcy Courts and Foreign Courts

Outside of the U.S. Have Adopted or Followed Guidelines

for Communication and Cooperation Between Courts in

Cross-Border Insolvency Matters (the “Guidelines”)

� Order Approving Protocol is:

● Usually agreed upon by stakeholders

● Approved by courts supervising cross border cases

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Cross Border Protocols (Cont.)

�Many Protocols Deal With the Following

Matters:

● Where legal papers must be filed

● Where claims must be filed, governing law,

and which court is responsible for

adjudicating claim

● Recognition of each court’s jurisdiction

● Court to court communications

● Joint hearing

5555

Cross Border Protocols (Cont.)

� Recent 2017 Amendments to Delaware Bankruptcy Court Local Rules Adopting Part X:

● GUIDELINES FOR COMMUNICATION AND COOPERATION

BETWEEN COURTS IN CROSS-BORDER INSOLVENCY

MATTERS

● Guidelines do not apply automatically – courts in cross border

jurisdictions must discuss entry of an order and/or protocols

● Protocols similar to those adopted in prior cross border

insolvencies in multiple jurisdictions, such as in the

AbitibiBowater proceedings pending in Superior Court of

Quebec and U.S. Bankruptcy Court, Delaware

� Similar Guidelines Adopted by U.S. Bankruptcy Court for the Southern District of New York, and Foreign Courts in Singapore, England, British Virgin Islands, and Bermuda

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Cross Border Protocols (Cont.)

�Recent Reports of U.S. Bankruptcy Courts

Working Cooperatively with Foreign Insolvency

Courts, Including in Korea and Singapore, to Implement Cross-Border Protocol Procedures

�Other Courts, Like in the Recent Hanjin Shipping

Case, Take a More Situation by Situation

Approach

● Coordination between U.S. Bankruptcy Court

and Korean insolvency court in connection

with asset sale motion

Page 28

NOT EVERY COUNTRY HAS

ADOPTED THE UNCITRAL

MODEL CROSS-BORDER

INSOLVENCY ACT

Page 29

5858

�Brazil has not adopted the

UNCITRAL Model Cross-Border

Insolvency Act

�Brazilian Law No. 11.101

●Effective February 9, 2005

●Governs commercial insolvency

Brazil

5959

Brazil

� Judicial Reorganization

● Voluntary proceeding can be initiated by the debtor

● No provision for an involuntary proceeding

� Evidence of Commercial Insolvency

● Non-payment of debt on due date

● Non-payment of guaranty or not depositing enough assets to be

pledged as guarantees

● Liquidates assets

● Engages in fraudulent means to pay debt

● Transfers business to 3rd parties without creditors’ approval and

remains with insufficient assets to pay its debts

● Gives or increases guaranties to creditors without free and clear

assets to support those guaranties

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6060

Brazil

● Judicial Administrator is appointed

- Inspects debtor’s activities to assure compliance with rehabilitation plan

- Ability to request a declaration of bankruptcy if there is no compliance

● Committee of Creditors

- Representative of labor creditors

- Representative of guarantee or special privileges

- Representative of unsecured creditors

o Inspect and monitor debtor’s proceedings

o Inform judge of any violations of legal provisions

o Issue opinions on interested parties’ complaints

6161

Brazil

�Purpose of Judicial Reorganization

● Allow debtor to overcome financial-economic crisis situation

● Further the preservation of the business activity

● Preservation of jobs and creditors’ interests

● Promote the preservation of the company, its social function and stimulation to the economic activity

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6262

Brazil

� Judicial Reorganization Provisions

● Mandatory Stay for 180 days

● Plan must be filed within 60 days of the petition

- Not extendable

- Failure to file causes debtor to be declared bankrupt

● Plan of Reorganization may include

- the renegotiation of debt values;

- The renegotiation of payment conditions;

- the sale of assets;

- a capital increase;

- the sale of business sectors; or,

- replacement of management, and so on.

6363

China

�China has not adopted the UNCITRAL Model Cross-Border Insolvency Act

�Enterprise Bankruptcy Law of the People’s Republic of China (2006 EBL)

● Enacted August 27, 2006;

● Effective June 1, 2007

�Applicable only to the People’s Republic of China

● Does not encompass Taiwan

Page 32

6464

China

� Types of bankruptcy proceedings

● All proceedings filed with the People’s Court

● Voluntary - A debtor files an Application for reorganization, compromise or bankruptcy liquidation

- When it fails to settle its debts as due AND

- If its assets are not sufficient to pay all the debts OR

- It is obviously incapable of clearing its debts

● Documents to be filed with the Debtor’s Application for Bankruptcy

- Statements on financial status

- List of all debts

- Reserve plan for employees

- Evidence of payment of wages and social insurance premiums

6565

China

� Types of bankruptcy proceedings

� Involuntary –

● A creditor may file an Application for Bankruptcy

- Within 5 days the related debtor must be informed

- Debtor has opportunity to put forward its demurral [polite objection] within 7 days from the date it receives notice

- People’s Court will decide within 10 days whether or not to accept the case

● If no demurral is filed by the debtor, the People’s Court will decide within 15 days from the original creditors’ application

● An additional 15 days may be granted for a decision by a higher level of the People’s Court

Page 33

6666

China

� Debtor remains in control of its assets and business with

the following responsibilities imposed upon the debtor’s

“relevant personnel” [i.e. legal representatives, including

financial managers and other operators]

● Properly preserve assets, books and records as well as all

documents in its control

● Respond to all requirements of the People’s Court and

bankruptcy administrator

● Attend the creditor’s meeting and respond to creditors’ inquiries

● not leave its domicile without permission of the People’s Court

● Not accept any post of director, supervisor or senior

management in any other business enterprise

6767

China

� When an Application for bankruptcy is accepted, the People’s Court Appoints an Administrator

� Functions of the Administrator

● Take control of all assets, books and records, and documents of the debtor

● Hold creditors’ meetings

● Investigate into the financial status of the debtor and formulate financial statements

● Maintain or replace internal management of the debtor

● Determine operating budget of the debtor

● Determine to continue or suspend the debtor’s business

● Manage and liquidate debtor’s assets, if that determination is made

● Step into the shoes of the debtor for any actions, arbitrations or other legal proceedings

● Perform any other functions and duties that the People’s Court assigns

Page 34

6868

China

� Claw-back provisions

● Invalid actions of the debtor

- Concealing or transferring the property in order to avoid

repayment of debts; and

- Fabricating debts or acknowledging unreal debts.

● An administrator shall have the right to request the court to nullify

any of the following actions taken within one year before the

people’s court accepts the application for bankruptcy in respect of

the debtor’s property:

- (1) transferring the property gratis;

- (2) trading at an obviously unreasonable price;

- (3) providing property guaranty to unsecured debts;

- (4) paying off debts not due; or

- (5) abandoning claims.

6969

China

� Creditors’ Meeting serves many purposes. At that meeting a Committee may be formed and a Chair is elected from among the creditors having a right to vote

� The Creditors’ Meeting will consider the following activity

● Review of creditors’ claims

● Monitor the Administrator, including

- Review the work of the administrator

- Seek the replacement of the administrator

- Examine the expenses and remuneration of the administrator

● Select and replace members of the Committee

● Decide whether to have the debtor continue or discontinue its business

● Adopt plans for reorganization, liquidation or agreements for compromise

● Review creditors’ claims

Page 35

7070

China

� Creditors’ Committee

● Selected at the creditors’ meeting

● Comprised of no more than nine persons and includes

- Creditors’ representatives

- Employee representative

- Trade union representative

● Must be confirmed by the People’s Court The members of the creditors’ committee shall be subject to confirmation by decision of the people’s court in writing.

� Creditors’ committee functions and powers:

● (1) supervising the management and disposition of the debtor’s property;

● (2) supervising the distribution of the bankruptcy property;

● (3) proposing the convening of a creditors’ meeting; and

● (4) other functions and powers as entrusted by the creditors’ meeting.

7171

China

� Plan of Reorganization

● Must be filed within 6 months from the application for bankruptcy

- Time may be extended by 3 months

● Plan must contain the following provisions

- (1) the debtor’s plan for business operations;

- (2) classification of the creditors’ claims;

- (3) the plan for the adjustment of the claims;

- (4) the plan for payment of the claims;

- (5) the period of time for implementing the reorganization plan;

- (6) the period of time for supervising the implementation of the

reorganization plan; and

- (7) other plans conducive to the debtor’s reorganization.

Page 36

7272

China

� Classification of Claims

● (1) the secured claims on the debtor’s specific property;

● (2) the wages, subsidies for medical treatment, injuries and disability and the pensions for the disabled and the families of the deceased which the debtor owes, the basic old-age insurance premiums and the basic medical insurance premiums which he owes and fails to enter in the employees’ personal accounts, and the compensations which should be paid to the employees as prescribed by relevant laws and administrative regulations;

● (3) the taxes the debtor fails to pay; and

● (4) the common claims.

� Voting on Plan

● When more than half of the creditors in voting group for the same category of claims who are present at the creditors’ meeting agree to a draft plan for reorganization and they represent two-thirds or more of the total amount of the said category of claims, the draft shall be deemed to be adopted by the group.

7373

China

� Finalization of Reorganization

● Approval of the Plan must be obtained from the creditors

● Within 10 days thereafter application for court approval must be filed

● Within 30 days from date of application court must:

- Approve plan

- Terminate proceeding

- Announce its decision.

� Cram-down of Plan

● If claims to secured creditors are to be paid in full

● If one class of claims has voted to accept plan

● All members of same class are treated equally

● Distribution will not be lower than under liquidation

● Rights and interest of equity are adjusted in a faire and impartial manner

● Plan is feasible

Page 37

7474

Mexico

�Ley de Consursos Mercantiles “LCM”

● Effective May 12, 2000

● Abrogated the Mexican Bankruptcy and Suspension

of Payments Law “BSPL” (in effect since 1943)

● Most recent amendments 2014

● Supervised by the Federal Institute of Specialists in

Mercantile Insolvency and Bankruptcy Procedure

(IFECOM)

● Mexico adopted the Model Cross-Border Insolvency

Act in 2000

7575

Mexico

� Concurso Mercantile Procedure

● Can be Initiated by

- The Debtor

- Any creditor [Involuntary]

- The District Attorney

- A judge

- Tax authorities in their capacities as creditors

� Appointment of Examiner

● Guarantee or bond must be posted to pay for an examiner

● Purpose of Examiner is to determine solvency or insolvency of debtor

- Report by Examiner due in 15 to 30 days

o Court determines solvency or insolvency 15 days from report

� If no insolvency, petitioner pays examiner fees and concurso ends.

Page 38

7676

Mexico

● Finding of Insolvency begins Conciliation

Stage

● Conciliator - a selected professional

appointed

- Intermediary between company and its creditors

- 185 days

oCan be extended but to no more than 1 year

7777

Mexico

� Purpose of Conciliation Stage

● Creditors and debtor attempt to reach an agreement

- Preserve the operation of the debtor’s business

● Reorganization Agreement

- Restructuring/Reorganization Plan

- Creditors’ Agreement

- Debtor may continue to manage business operations

● Conciliator can request the debtor to be removed

- Conciliator will manage company

● Creditors are recognized based on

- debtor’s books and records

- Proofs of claim filed by creditors

Page 39

7878

Mexico

� Conciliation Stage

● Creditors Committee may exist on a case by case basis

● Reorganization Plan requires more than 50% of creditors consenting

- Includes all creditors: secured, unsecured and subordinated

- An Intervenor can be selected to represent the creditors

- and debtor attempt to reach an agreement

- Preserve the operation of the debtor’s business

● No automatic stay

● Special Rules exist for

- Termination of Leases

- Security Loan Transactions

- Types of Executory Contracts

7979

Mexico

�Liquidation Stage - Bankruptcy

● Conciliation Stage ends for any reason

● Trustee (“sindico”) is appointed

- May replace conciliator

- May replace debtor’s management

- All assets are delivered to receiver

● Length of bankruptcy varies

● All assets liquidated

- Similar to U.S. Chapter 7

Page 40

Questions

Page 41

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